Would my husband and I starting a multi-member LLC in California result in any tax burden and tax preparation cost savings vs my husband reporting his earnings as a sole proprietor?

[bookworm12k]

My husband is technically a partner of a multi-member LLC, but some miscommunications led to it effectively being dissolved in the eyes of the IRS without his knowledge. This left him being blindsided by having to file as a sole proprietor for 2023, resulting in the largest tax bill he's ever had by a significant margin. The LLC still hasn't been sorted out between his business partners and business CPA, so he'll have to report his earnings as a sole proprietor again next year for 2024 earnings. My question is, if my husband and I form a multi-member LLC and route his "sole proprietor" earnings from the quasi-LLC through it until his LLC with his business partners is restored, would we save any money? I help him with his work a lot, so it wouldn't be unfair to say that I contribute to those earnings and would be a valid business partner. Further, we plan on starting a separate venture together in the near future. However, with the costs of forming and registering the LLC and preparing the separate LLC return on top of our personal tax returns, and us still paying taxes for the full amount between the two of us, I'm not sure if we'd save any money.

[tagteam]

You might want to seek guidance from a local tax professional and/or legal counsel.

In the interim, you should read through the information at the link below (IRS web site).

https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...

[AmeliesUncle]

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@bookworm12k wrote:

having to file as a sole proprietor for 2023, resulting in the largest tax bill he's ever had by a significant margin. 

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If his income was similar, in most cases that doesn't make sense (unless he also somehow owned a Limited Partnership Interest that was not subject to SE tax, but in my opinion that is legally questionable).  If his income was similar, the tax should be very similar between Partnership income an income as a Sole Proprietor.  Similarly, in answer to your question, you and your husband filing as a Partnership generally would not save tax (and could even result in more tax).

As Tagteam mentioned, going to a good tax professional is a good idea.